PCIT Vs Colo Colour Pvt. Ltd. (Bombay High Court)
The Bombay High Court has dismissed a revenue appeal, upholding the deletion of a penalty imposed on Colo Colour Pvt. Ltd. under Section 271(1)(c) of the Income Tax Act, 1961. The dispute arose from the assessment year 2011-12, where the assessee’s re-assessment was completed with an addition of Rs. 7,40,776 for alleged bogus purchases and a further Rs. 59,262 for commission. The assessee, a photo studio operator, had agreed to the additions during the re-assessment to “buy peace of mind” and avoid prolonged litigation, a stance that was noted by the Assessing Officer (AO).
The AO’s Stance and the Appellate Tribunal’s Rejection
The AO, relying on information from the Sales Tax Department, deemed the purchases to be “bogus” but also acknowledged that the actual goods were likely received, as corresponding sales were made. Instead of disallowing the entire purchase amount, the AO estimated a profit element of 12.5% of the total purchase value and an additional 1% for commission expenses. Subsequently, the AO initiated and levied a penalty under Section 271(1)(c) for “concealment of income” or “furnishing inaccurate particulars.”
The Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT) both ruled against the penalty, a decision that the Bombay High Court has now affirmed. The CIT(A) and ITAT noted that the penalty was based on a subjective, ad-hoc estimation of profit rather than on definitive proof of concealment. They reasoned that the assessee had provided all relevant documents—invoices, bank statements, and stock details—and had agreed to the addition only to avoid legal costs, not because they admitted to any wrongdoing.
